How to lose a trade war with China in one easy step

RICH LOWRY, National Review

There's already a trade war, and it's being waged by Beijing.

China's ascension to the World Trade Organization nearly 20 years ago has failed in its large-scale strategic objectives. It hasn't created a liberalizing regime or a free-market economy in China; in fact, it hasn't even created a China ready and willing to abide by the norms of free trade.

The regime of Xi Jinping hasn't been pushed toward democratic reforms by a rising middle class. China still champions state-led, rather than market-led, capitalism. And it takes advantage of the WTO, using nontariff barriers and industrial policy, to push mercantilist policies.

President Donald Trump's prospective tariffs on steel and aluminum have put renewed focus on China trade, although the tariffs are a comically inept misfire if their true target is China. The rubric for the levies could be: "How to lose a trade war with China in one easy step."

The tariffs don't really affect China, from which we import only about 3 percent of our steel. Meanwhile, they send the message that the U.S. government is lurching toward protectionism, and alienate our allies. They run exactly counter to what would be a sound approach to Chinese mercantilism, as a compelling report by the Information Technology and Innovation Foundation underscores.

The report argues that there are two ways to wave the white flag on China trade — one, favored by the Washington establishment, is to accept Chinese cheating as the way of the world; the other, perhaps favored by Trump, is to adopt a mercantilism of our own. Both would concede to the Chinese an outsize role in forging new, less desirable rules of the road in the global trading system and poorly serve America's interests.

A better approach begins with acknowledging that China is a unique problem. For all of Trump's complaints, Mexico isn't pursuing a well-honed strategic agenda of exploiting the global trade system at the same time it undertakes an aggressive neoimperialist foreign policy. Only China is doing that.

China isn't the first developing country to adopt a policy of maximizing exports. What makes it different is its sheer ambition and its size, which gives it leverage over foreign companies and considerable international influence.

What's the harm to the U.S.? Yes, technology accounts for a large share of job losses in manufacturing in recent decades. Yes, lower-end manufacturing would have left our shores regardless. But there is no doubt that China's practices have harmed the U.S. manufacturing sector, and that Beijing works to block higher-value-added exports from the U.S. and is pursuing a comprehensive strategy to dominate in advanced industries.

By no means should we emulate China. We should continue to pursue free trade as a policy, not as a theology that prevents us from acknowledging that there is such a thing as unfair trade.

The ITIF report urges using the global free-trade regime against China. That means bringing more actions against China in the WTO and working to update the rules to capture Chinese cheating. It means joining, and influencing, a multilateral agreement like the Trans-Pacific Partnership. It means forging bilateral agreements with up-to-date standards that reinforce principles that China undermines.

We obviously can't do this alone. We'd have to lead an alliance of international partners to pressure China on specific practices, with tailored consequences if we get nowhere.

Such a broad-based effort to crack China's mercantilism wouldn't be protectionist, but the opposite. There is obviously no chance of doing this, though, if we are engaged in an absurd cycle of tit-for-tat tariffs with the likes of the EU.

Trump can have emotionally satisfying tariffs to scratch his protectionist itch, or he can have a strategy to muster an alliance of truly free-trade partners to pressure China. He can't have both — and you can be sure China knows which option it prefers.